1. Explain the difference between independent projects and mutually exclusive projects.
2. Explain why the timing and quantity of cash flows are important in capital investment decisions.
3. The time value of money is ignored by the payback period and the accounting rate of return. Explain why this is a major deficiency in these two models.
4. What is the payback period? Compute the payback period for an investment requiring an initial outlay of $80,000 with expected annual cash inflows of $30,000.
5. Name and discuss three possible reasons that the payback period is used to help make capital investment decisions.
6. What is the accounting rate of return? Compute the accounting rate of return for an investment that requires an initial outlay of $300,000 and promises an average net income of $100,000.